The experts at Technical Connection examine pensions and the overseas transfer charge
A recognised transfer can only be made from a registered UK pension scheme to a qualifying recognised overseas pension scheme (QROPS). A scheme must be a recognised overseas pension scheme (ROPS) first to be considered as a QROPS.
However, even though the transfer is permitted, an overseas transfer charge may apply in certain situations.
Here, we outline the principles of the overseas transfer charge as it applies to transfers from a UK scheme to a QROPS. An overseas transfer charge may also apply to onward transfers from a QROPS, or former QROPS, to another QROPS.
A recognised transfer from a registered pension scheme to a QROPS that was requested on or after 9 March 2017 may be subject to the overseas transfer charge. Unless one of the five exclusion conditions are met (see below), the transfer will be taxable.
If the overseas transfer charge applies, it is set at 25% of the ‘transferred value’. Details of what constitutes the transferred value are set out in HM Revenue and Customs’ Pensions Tax Manual PTM102500. The scheme member and the scheme administrator are jointly and severally liable to the tax charge. The tax charge on the transfer should be deducted before the transfer by the scheme administrator or scheme manager of the pension scheme.
Exemptions to the transfer charge
On transferring from a registered pension scheme to a QROPS, the transfer charge will apply unless one of the following conditions are met:
- The individual is resident in the same country as that in which the QROPS is established.
- The QROPS is in one country in the European Economic Area (EEA), i.e. an EU member state, Norway, Iceland or Liechtenstein, or Gibraltar, and the individual is resident in the UK or resident in another EEA country, or Gibraltar.
- The QROPS is an occupational pension scheme sponsored by the individual’s employer.
- The QROPS is an overseas public service pension scheme as defined in Regulation 3(1B) of S.I. 2006/206, and the individual is employed by one of the employers participating in the scheme.
- The QROPS is a pension scheme established by an international organisation as defined in Regulation 2(4) of S.I. 2006/206, to provide benefits for, or in respect of, past service and the individual is employed by that international organisation. HMRC’s Pensions Tax Manual PTM112200 provides guidance on the definition of an international organisation.
These exclusions are subject to the member having provided the scheme administrator with the required information in relation to the exemption before the transfer. If the member has not provided this information before the transfer, it will be subject to the overseas transfer charge.
Note that if the position changes within five tax years after the transfer, the transfer charge may be levied (where it had been exempt at the time of transfer), or reclaimed from HMRC (if it was paid but is now found to be exempt).
Where a lifetime allowance charge (LTA) applies on the transfer to a QROPS, the overseas transfer charge will be applied to the value of the funds transferred after the deduction of the LTA charge.